Offshore alarms pummel shares

Escalating tensions in Libya and the earthquake in Christchurch prompted investors to dump shares and other risky assets yesterday, overshadowing positive news from BHP Billiton and prompting the sharemarket to close lower for a third straight session.

European markets sank more than 1 per cent on Monday night as protests raged in Libya, encouraging investors to safe-haven assets like gold and the Swiss franc. The jitters spilled into the region yesterday, as Japan’s Nikkei declined by 1.78 per cent to 10,664.70, China’s Shanghai Composite plunged 2.62 per cent lower at 2855.52 and Hong Kong’s Hang Seng slumped 2.11 per cent to 22,990.81.

New Zealand’s NZX 50 Index fell 0.69 per cent to 3358.71 as Christchurch was rocked by a 6.3 magnitude earthquake.

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BHP was one bright spot, rising 73¢ to $46.58, and adding 10.4 points to the index as it announced a takeover and details of its buyback.

The big four banks wiped more than a combined 15 points off the index between them after financial stocks plunged in Europe. Commonwealth Bank shed 71¢ to $53.21, ANZ fell 29¢ to $24.36, Westpac was lower by 37¢ at $23.70 and National Australia Bank dropped 31¢ to $25.83.

Credit Suisse analyst Jarrod Martin said weakness among financials in Europe and geopolitical tensions globally had damaged sentiment towards the sector, in light of the banks’ dependence on offshore funding. “The sector has been reasonably well bid going into trading updates, which showed that they were doing reasonably well, so there is an element of profit taking in there as well, " he continued.

“It doesn’t impact them from an earnings perspective but from a funding perspective it certainly does. And what’s happened in New Zealand has just added to the risk aversion," he said.

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Other shares exposed to New Zealand closed the session in negative territory. AMP fell 8¢ to $5.52, Telecom New Zealand shed 4¢ to $2.16, Sky City fell 5¢ to $2.45. and Air New Zealand fell 4¢ to $1.01.

BHP rose after announcing it would purchase Chesapeake Energy’s oil shale assets in Arkansas for $US4.5 billion and confirming it would buy $US5 billion in Australian shares in an off-market transaction.

Tribeca Investments portfolio manager Sean Fenton said the positive reaction in BHP shares was primarily due to the resolution of uncertainty surrounding its capital management plans.

“I think the market is reacting more to the value of the franking credits in the buyback," he said. “You have got a very tax-effective, off-market buyback that obviously has tax advantages for Australian shareholders. By itself, $4.5 billion sounds like a lot of money, but compared to the market cap of BHP, it’s more of a toe in the water than a game changing acquisition like Rio Tinto or Potash Corp would have been."

Investors have spent the session digesting a deluge of earnings reports with results decidedly mixed.

Wesfarmers fell $1.03, or 3.01 per cent, to $33.15 after the stock traded without the rights to its 65¢ interim dividend.

Seek delivered a 31 per cent rise in first-half net profit, but was among the biggest decliners, dropping 83¢, or 11.74 per cent, to $6.24 as its education business struggled.

“The education business been struggling and it was supposed to be the next stage of growth so there’s probably a degree of disillusionment there. That’s always the risk when you have a stock with a high multiple and growth expectations, the risk of disappointment," Mr Fenton said.

Among other companies that reported, Mirvac ended the session 2.5¢ higher at $1.29 after reporting a smaller than expected first-half loss, while OneSteel shed 14¢ to close at $2.84 after its first-half result revealed weak performance for its steel making and distribution business. Austar gained 2.5¢ to close at $1.115, Sonic Healthcare fell 45¢ to $11.37, and Southern Cross Media was 3¢ lower at $1.92.

“At these levels you are starting to get a slowdown in global growth. With low growth globally, oil above $US100 starts to impact companies’ margins. It’s a bad combination for over-leveraged economies. You will get inflation, but not the type you want," he said.